China is restricting the export of two little-known metals crucial to the semiconductor industry. It shows Beijing still holds important chips in its tech war with the West.

• China will restrict the exports of gallium and germanium — metals vital to chipmaking — from August 1.
• Authorities said the move aims to “safeguard national security and interests.”
• The export curb is seen as a retaliatory move by Beijing amid a chip war with the West.

China and the US are getting increasingly ensnared in a chip war that has escalated since October.

A recent move by China to restrict the export of two little-known metals has again sent the semiconductor industry into a tailspin.

In a Monday notice, China’s commerce ministry and customs department said it plans to control the exports of two metals — gallium and germanium — along with several of their compounds from August 1 to “safeguard national security and interests.”

Exporters can apply for export licenses if they want to continue shipping the products out of China, per the notice.

Gallium and germanium are used in chip making, electronics, and solar products, so news of the export curb is seen as a retaliatory move by Beijing in the country’s tech war with the West.

The notice comes just days after the Netherlands restricted the sale of high-end chipmaking equipment abroad — a move that appears to be targeting China.

The Biden administration also wants to curb Chinese companies’ access to US-based cloud providers, the Wall Street Journal reported on Tuesday, citing people familiar with the situation.

Back in October, the US started limiting the sales of advanced semiconductors and chipmaking equipment to China.

“It is a shot across the bow intended to remind countries including the United States, Japan, and the Netherlands that China has retaliatory options and to thereby deter them from imposing further restrictions on Chinese access to high-end chips and tools,” analysts at Eurasia Group, a risk consultancy, wrote in a Tuesday note seen by Insider.

Since US Treasury Secretary Janet Yellen is scheduled to travel to Beijing for a three-day visit on Thursday, the Chinese authorities could be using the export restrictions as leverage in discussions, per the analysts.

Industry players globally are now assessing their risks to the export controls, Reuters reported on Tuesday.

Both gallium and germanium have limited alternatives and are only found in trace amounts naturally.

Instead, they are commercially sourced in large amounts as by-products of other industrial processes. China accounts for about 80% and 60% of global gallium and germanium production, respectively, according to Critical Raw Materials Alliance, a European industry association.

“There is no major global shortage of gallium or germanium. China dominates production of these two metals not because they are rare, but because it has been able to keep their production costs fairly low and manufacturers elsewhere haven’t been able to match the country’s competitive costs,” Ewa Manthey, a commodity strategist at Dutch bank ING, wrote in a Tuesday note.

She added that extracting the two metals can be costly and technically challenging, and hence very few facilities outside of China are able to produce gallium and germanium.

Manthey expects the prices of the two metals to rise in the short term although other manufacturers — including those in North America and Europe — would likely ramp up production in the long run, should prices continue to remain high.